1.3: Generally Accepted Account Principles

Question 1

What is the GAAP hierarchy under ASPE?

Answer 1

The GAAP hierarchy under ASPE outlines the sources of GAAP in descending order of authority.

The primary sources include:

• Handbook Sections 1400 to 3870 (including Appendices)
• Accounting Guidelines (including Appendices)
• Secondary sources include:

- Background information and basis for conclusions documents issued by the AcSB
- Pronouncements by standard-setting bodies in other jurisdictions
- Approved drafts of primary sources
- Research studies
- Accounting textbooks, journals, studies, and articles
- Industry practice (as long as consistent with the GAAP concepts in Section 1000)

Question 2

What is ASPE?

Answer 2

ASPE stands for Accounting Standards for Private Enterprises.

It is a set of accounting standards in Canada that provides GAAP specifically for private entities that are not publicly accountable.

ASPE is less complex than IFRS and is designed for the needs of smaller, private companies.

Question 3

What is IFRS and how does it relate to GAAP?

Answer 3

IFRS (International Financial Reporting Standards) are a set of global accounting standards developed by the IASB.

Under IFRS, GAAP incorporates the following:

• **IFRS
• International Accounting Standards (IAS)
• Interpretations (from IFRIC or the SIC)**

These standards ensure that financial statements are comparable across international borders, improving transparency and accountability in financial reporting.

Question 4

What role does professional judgement play in ASPE and IFRS?

Answer 4

Professional judgement is essential under both ASPE and IFRS because not all situations can be addressed by specific rules.

Accountants must apply broad principles, guided by the conceptual framework, to ensure that the resulting information is relevant and reliable, especially when there is no specific standard to follow.

Question 5

How does professional judgement affect the application of GAAP?

Answer 5

Professional judgement requires accountants to apply general principles when specific rules are not available.

It is based on the conceptual framework of financial reporting and ensures that professional accountants with education and experience can address complex issues in financial reporting appropriately.

Question 6

What are the similarities between the GAAP hierarchy under ASPE and IFRS?

Answer 6

Both hierarchies:

Provide guidance to answer the question, “What is GAAP?”

Rank sources and consider certain sources as more important.

Are grounded in the conceptual framework.

Emphasize the use of professional judgement in applying principles to specific circumstances.